Separate companies

Question from Richard updated on 1st November 2011:

We have two investment properties with ASB which were set up under an LAQC many years ago and are now assigned as an LTC. They are security for each other as ASB would not do it any other way. We are locked in until early 2014 with low fixed interest rates. The two properties cost us about $200 per month. One can be developed further as it is on a 809 sq mtr section with a two bdrm house on it. My partner and I as 50/50 share holders. We are now buying more properties and have cash for the individual deposits on property three. A cash deposit for property four is with BNZ. Our new property ownership set up is a QC with 50/50 share split again and will be cash flow positive. Is there anything I should be wary of with our current structure? Together we earn in excess of $250k so I want to know that we are doing the best we can with what we have. Does our current structure represent the best structure for us.

Our expert Mark Withers responded:

Having two seperate companies with two properties each does seem a bit cumbersome and administrative but the fact that the loss making ones are in the LTC and the profitable ones are in the QC is probably making the best of it. This alows you to retain profit in the QC and continue to reduce the debt and build the profitability. Whilst the profit is retained in the QC you can enjoy the low corporate tax rate of 28% which will be lower than your personal rate and lower than a trust. Focus your debt reduction on the QC to build it's profitability ahead of the LTC. Try to ensure you don't cross colateralise the two companies properties to ensure the banking is seperate for the two companies. The structure offers none of the asset protection you could gain with a trust in the mix but is none the less workable from a tax perspective given the low tax rate enjoyed by the QC.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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